Multiple Regression Analysis for a Special Decision (Requires Computer Spreadsheet) (LO2, 3)

For billing purposes, Central City Health Clinic classifies its services into one of four major procedures, X1 through X4. A local business has proposed that Central City provide health services to its employees and their families at the following set rates per procedure:

Daliieeeaesec.i r $ 45 KOT ee cs 90 RO Beets 65 60 KA een fic 105 Because these rates are significantly below the current rates charged for these services, management has asked for detailed cost information on each procedure. The following information is available for the most recent 12 months.

Number of Procedures Month Total Cost x1 X2 X3 X4 iE So he eee $23,000 30 100 205 05 Bete re 25,000 38 120 180 90 Cte eee 27,000 50 80 140 150 AR re tickG l: 19,000 20 90 120 100 yo Mae ae 20,000 67 50 160 80 See reer 27,000 90 75 210 105 eerenv ite ts 25,500 20 110 190 110 Bo. escte ty: 21,500 15 120 1S 80 OM mgactetis wisi 26,000 60 85 125 140 Oh Son ase ee 22,000 20 90 100 140 sl algae ewrestoy ts 22,800 20 70 150 130 A 2a aye ats 26,500 U2 60 200 120 Required

a. Use multiple regression analysis to determine the unit cost of each procedure. How much variation in monthly cost is explained by your cost-estimating equation?

b. Evaluate the rates proposed by the local business. Assuming Central City has excess capacity and no employees of the local business currently patronize the clinic, what are your recommendations regarding the proposal?

c. Eyaluate the rates proposed by the local business. Assuming Central City is operating at capacity and would have to turn current customers away if it agrees to provide health services to the local business, what are your recommendations regarding the proposal?

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